Allianz Global Investors GMBH & Ors v Barclays Bank PLC & Ors

A fund does not avoid or mitigate a loss merely because investors redeem at a net asset value reduced by the wrongdoing. The character of the transaction producing the apparent benefit is decisive. A redemption under pre-existing constitutional arrangements is independent of the loss and is a collateral benefit (res inter alios acta), not a recovery reducing damages.

A redeeming shareholder cannot turn reflective loss into an actionable personal loss. Likewise, redeeming beneficiaries and limited partners do not acquire direct claims for loss to the fund. Article 101 does not require direct investor claims where domestic law affords effective protection through the entity and, where appropriate, derivative proceedings.

The claimant investment funds sued the defendant banks for damages arising from alleged unlawful manipulation of foreign-exchange markets, contrary to Article 101 of the Treaty on the Functioning of the European Union and section 2 of the Competition Act 1998.

The banks pleaded that the funds had avoided, or passed on, losses when investors redeemed investments at a reduced net asset value. Sir Nigel Teare dismissed the funds’ strike-out application and permitted that plea: [2021] EWHC 399 (Comm). The funds appealed.

The central issue was whether lower redemption payments reduced the funds’ recoverable loss, and whether redeeming shareholders, beneficiaries or limited partners acquired corresponding direct claims against the banks.

1. Appeal allowed. The banks’ allegation that the funds’ losses had been avoided or passed on by redemptions was struck out.

2. The decisive issue was avoided loss, not reflective loss or an investor’s title to sue. Under Swynson, a benefit reduces damages only if it is not collateral to the claimant’s loss. The court must examine the transaction that generated the benefit. A lower payment on redemption arose from pre-existing trust, company or partnership arrangements under which investors shared the fund’s gains and losses. It was not a transaction undertaken in the course of the fund’s investment business in consequence of the banks’ wrongdoing. It was therefore collateral and did not reduce the fund’s recoverable loss: [2017] UKSC 32.

3. A redeeming shareholder has no separate claim for the diminution in value of its investment. The reflective-loss rule applies when the company suffers the loss. Sale or redemption cannot convert that loss into an actionable one. A redemption payment is within the broad concept of distributions used in the rule: [2020] UKSC 31; [2021] UKPC 22.

4. For a trust, the cause of action for damage to trust property ordinarily belongs to the trustees and remains with them after a beneficiary redeems. The same analysis applies to a limited partnership: the claim is a partnership asset pursued by the general partner, subject to any derivative remedy. A former beneficiary or limited partner does not acquire a direct claim on redemption.

5. Article 101 of the Treaty on the Functioning of the European Union did not require domestic law to create direct claims for redeeming investors. Effective judicial protection was available through the fund and, where appropriate, derivative proceedings. In any event, after IP completion day, the EU principle of effectiveness could not disapply the relevant domestic rules.

• Court of Appeal (Civil Division): Allowed the funds’ appeal and struck out the banks’ avoided-loss and pass-on allegation: [2022] EWCA Civ 353.

• High Court, Commercial Court: Sir Nigel Teare dismissed the funds’ application to strike out the redemption argument and allowed the banks to amend their defences: [2021] EWHC 399 (Comm).